Toyota, Honda may lose out on hybrid vehicle tax credits

WASHINGTON - Toyota and Honda could be penalized by a proposed limit on the number of tax credits available for makers of hybrid vehicles.

The cap is included in a major energy bill pending before Congress. It likely would benefit the Big 3, which trail their Japanese counterparts in the gasoline-electric hybrid vehicle race.

Every automaker planning to build fuel-saving vehicles has a stake in the energy bill, which stalled just short of passage in Congress. The legislation contains hefty tax credits for buyers of hybrid, advanced diesel and fuel cell-powered vehicles.

But the current version also would cap the number of vehicles from each manufacturer that would be eligible for federal tax credits. In time, that provision could penalize Toyota and Honda, which aggressively have marketed gasoline-electric hybrids.

Industry lobbyists say the cap is intended to limit overall costs to the U.S. Treasury. But it also means some credits would be reserved for customers who buy vehicles from the Big 3, which have been slow to enter the market with their hybrids.

"One of the effects of the capping mechanism (is to not) allow any individual manufacturer to get a runaway benefit," General Motors lobbyist Mark Kemmer says.

Once a company sells 80,000 hybrids or advanced diesels eligible for credits, the program would phase out for that manufacturer. Backers of the legislation expect the credits to subsidize the sale of as many as 500,000 hybrid vehicles before they expire in 2008.

The maximum credit for hybrids and diesels would be $3,400. The cap would not apply to tax credits of as much as $8,000 for buyers of cars or trucks powered by fuel cells.

But first, supporters must find two more votes in the Senate. The House voted 246-180 for the bill. Senators favored it by a 58-39 margin - just short of the 60 "yes" votes needed to break a filibuster. Despite frantic deal making, the Senate was unable to round up those last two votes.

House Energy and Commerce Committee Chairman Billy Tauzin, R-La., a principal author of the measure, predicts that it will be enacted early in 2004.

Authorize more than $2 billion to promote development of fuel cells. In the next five years, some of that money would be earmarked for FreedomCAR, a Big 3 research venture.

Renew corporate average fuel economy credits for vehicles that can use ethanol or gasoline. Environmental groups call this provision a major loophole because vehicle owners usually opt for gasoline.

Eliminate a previously scheduled 2004-06 phaseout of an existing $4,000 tax credit for all-electric vehicles and an existing $2,000 tax deduction for vehicles that use clean fuels, such as natural gas. The Internal Revenue Service has allowed the latter deduction to be used by buyers of Toyota and Honda gasoline-electric hybrids.

Despite these other provisions, automakers primarily are interested in tax credits for hybrids, diesels and fuel cells. Automakers say help is needed to overcome the high cost of introducing advanced technologies.

Some environmental groups also favor tax credits as a way to get fuel-saving technologies on the road.

No hybrid or diesel vehicle sold now or in the near future would qualify for the maximum credit of $3,400, industry lobbyists say. For example, the purchaser of a Honda Civic Hybrid would receive a $2,100 credit.

The Jeep Liberty diesel that goes on sale next summer would not initially qualify for any credit. Its tailpipe emissions will be too high, DaimlerChrysler executives confirm.

Toyota and Honda, which together have sold 100,000 hybrids in the United States, grudgingly accept the cap of 80,000 units per automaker.

"While we might not favor it, we understand it," says Doug West, senior vice president of Toyota Motor North America Inc. in Washington. The cap is the method Congress chose to spread incentives across the industry, he says.

Ed Cohen, vice president for government and industry relations at Honda North America Inc., says his company would rather not have the cap. But he accepts it as a political accommodation.

Besides limiting overall costs to about $2 billion in the first five years, Cohen says, the cap "allocates some of those dollars to manufacturers whose vehicles are not going to be available for incentivizing for the next couple years."

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